Overcoming the restricted stigma

Seeking to distance the firm from a narrow definition of non-independent advice, Mr Murray said 1825 offers restricted advice with products from a list of providers including Canada Life, Axa, Novia, Prudential and Cofunds.

He said: “We are calling ourselves restricted, but the advice people will be able to give is very broad and we are looking to broaden that over time.

“If we see gaps in our proposition, advisers will be able to go outside those panels. We want to make sure we are not shoehorning people into things.

“If we realised it needed to be broadened out, you could step outside the proposition and look at the whole of the market.”

When he announced the sale of his company to 1825, Carl Lamb, managing director of Almary Green, admitted he had not taken the decision to renounce independent status lightly, but said the argument for independence has weakened with the pressures on affordability.

Why do restricted advice firms still need to defend the status in 2016?

According to Derek Bradley, former financial adviser and chief executive of online industry forum PanaceaAdviser, there is a stigma attached to being restricted but “only in the eyes of those who offer whole-of-market advice”.

Tim Sargisson, chief executive of Sandringham Financial Partners, agrees. “Yes, largely among the adviser community. Too many advisers are locked in the past and see restricted as being no different to the early days of polarisation.

“The point is ‘polarisation’ as a solution has moved on but for many the debate hasn’t moved on and remains black and white - ‘independent, good; restricted, bad’.”

Polarisation as a concept in investment advice was introduced by the Financial Services Act 1986, after which firms had to choose between selling products from a single provider, or advising clients as an IFA on the full range of available products.

The stigma is generally held by the industry rather than the public as most consumers don’t really understand the difference Keith Richards

Mr Sargisson adds: “For some people, restricted advice is still viewed as akin to the old tied approach via a single product provider, and therefore viewed as inferior and less likely to produce a suitable customer outcome.”

Regulatory perception

The former regulator, the Financial Services Authority, in its June 2012: Finalised Guidance, Retail Distribution Review: Independent and Restricted Advice, set out what it considered to be ‘independent’ and ‘restricted’ advice in the post-RDR environment.

The document states: “Restricted advice, which is advice that does not meet the standard for independent advice, will come in many different forms. While a firm needs to describe the nature of its restricted advice service to clients, it is free to choose the words that are appropriate for its service.”

This was considered to be too vague, however, and in 2014, the Financial Conduct Authority (FCA) issued guidance on its ‘new standard’ for independent advice, aiming to clarify what constitutes independent and restricted advice.

In its Factsheet No.009: Independent and Restricted Advice, the FCA states:

■ If your firm gives independent advice you will need to consider a broader range of products (beyond packaged products).

■ A firm giving independent advice must provide unbiased, unrestricted advice based on a comprehensive and fair analysis of the relevant market.

■ Before giving advice, all advisers will have to tell their clients if they provide ‘independent’ or ‘restricted’ advice.

It states: “Independent advice is advice which is unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market. Genuinely independent advice is free from any restrictions that could affect advisers’ ability to recommend what is best for the customer.”

The same document also outlines what comprises restricted advice: “Firms that give advice on a limited range of products or providers will be giving restricted advice. They must still meet our suitability requirements even if they offer restricted advice.”

This comes with a warning: “If your firm gives restricted advice and chooses to limit the range of products you advise on to a certain range of investments or providers, there will be some clients for whom this is not suitable.

“It is not acceptable for a firm to make a recommendation for a product that closely matches the needs of the consumer, from the restricted range of products they offer, when that product is not suitable.”

Independent and restricted advice: key differences

 Source: FCA

Public perception

But if there is a stigma to offering restricted advice, it is not one that exists in the mind of the general public, says Keith Richards, chief executive of the Personal Finance Society (PFS).

He explains: “The stigma is generally held by the industry rather than the public as most consumers don’t really understand the difference and few advisers who have moved from one advice status to the other have rarely reported any loss of existing clients.

“When advisers explain what their restricted proposition offers it is unlikely to deter a new client from engaging. Even consumers who have experienced ‘independent’ advice might see today’s ‘restricted advice’ as similar, or in some instances more comprehensive.”

Mr Richards continues: “Restricted advisers do not use the word within their role description, of course, and use generic titles such as ‘financial adviser’ or ‘financial planner’.

“Not all IFAs use ‘independent’ within their titles either.”

Chris Hannant, director general of the Association of Professional Financial Advisers (Apfa), says he is not sure ‘stigma’ is the right word to attach to restricted status.

He says: “I think there is still a strong belief in providing independent advice among a good portion of the adviser population.

“Most advisers recognise there are merits in different business models and clients will seek different services.”

However, it could be an issue for networking outside of the financial adviser industry, says the PFS’ Keith Richards. He concedes: “It’s fair to say professional connections and consumer champions will often prefer to recommend ‘independent’ on the basis it is unrestricted.

“So perhaps it is time for labels to go.”